Wake-Up Call from Facebook: TV Ad Pricing Needs to Change

TV Lags Social Networks When it Comes to Ad Pricing

It never ceases to amaze me when companies at the top of their industries actively fail to innovate. This is especially troublesome because, as leaders, it is not that they lack the means to innovate. Rather, they usually have the means, and unequalled resources, but make active decisions to block innovation.

Whether it was General Motors in the 1970s deciding that there was not enough profit in small cars (enter the Japanese car companies), or Kodak deciding not to leverage its vast research into digital imaging technology and mountains of digital patents (enter digital companies right and left), or Sports Illustrated deciding that its once-a-year swimsuit issue extravaganza was the future of sports multimedia (enter ESPN) -- the road is littered with leaders whose hubris led to downfall.

Perhaps the most shocking example of a leader that fails to innovate is the television industry.

Earlier this month, Facebook announced that it would start monitoring the relevance of ads as part of its pricing model. The social network will judge relevance based on how positively or negatively its audience views each ad. Positive measures are things such as views, shares and clicks. Hiding your ad from view is an example of a negative action.

This means that advertisers' bids for Facebook ads will be enhanced by high relevance scores. In effect, good ads will pay less than bad ones, just as in the search universe. This works particularly well for Facebook. There is great demand for its ads, and it has begun to cut back on the supply of ads sold. In this kind of environment, Facebook can have its cake and eat it, too. It can increase prices overall, while increasing the quality of what its users see by subsidizing the best ads. The result: more money, more relevance, a better consumer experience and better ads all at once.

The idea that good ads are good for the consumer and the medium alike is not revolutionary. Any student of advertising knows that the vast majority of commercials on TV are not highly creative, highly engaging or highly entertaining. Viewers skip most ads on DVRs for a reason.

What is so shocking about the Facebook development is that for many years now, the TV industry has been able to measure the ratings of commercials with C3 ratings. With the addition of new data from Rentrak, now powered by its Kantar Media acquisition, advertisers can even go deeper, to second-by-second ratings, retention, stickiness and more.

Admittedly, TV and online social networks are vastly different. The measures are different. The usage is different. The environment is different. The measure of relevance is different. One is becoming dominated by programmatic buying, and the other is not -- yet. However, the principle is exactly the same.

A new pricing system for TV commercials, based on the quality of ads as decided by viewers, is inevitable. If the internet has taught us one thing, it is that content is king -- and a third of all content on TV is commercials. That a new pricing system is good in the long run for the advertisers themselves is also obvious, even if the first dose tastes like castor oil.

TV networks have long been in a position to charge more for bad ads and less for good ones. But yet again, like their narrow-minded predecessors, they opted for the comfort of the status quo. They feared that rocking the boat would drive even more dollars to digital. In fact, not rocking the boat has driven more dollars to digital. The losers to date: TV watchers, advertisers, and most of all, the TV industry itself.

A new TV ad pricing model will need to go beyond the ratings, and stickiness, that TV networks currently measure, and beyond the easy-to-measure data that Facebook collects. The TV industry will need to invest in the type of creative evaluation testing that big marketers use to test their ads, or at the very least, it should review these scores from a third party, like Millward Brown for example, in order to provide a discount to ads that score well.

It is amazing to think that TV networks, throughout their history, have focused their entire organizations on creating the best programming possible to win in the marketplace, and yet have shown literally no interest in the quality of one-third of their content. Facebook's relevance bidding model is a wake-up call for TV, as if it needed another one.